In an announcement in a few hours time, General Motors, the world’s biggest car maker, will confirm that it is slashing its view of its future profitability by writing down the value of future tax losses by $US39 billion.
The company said in a statement issued in Detroit a few hours ago that it will reveal the loss in its third quarter results which are due out tonight, Australian time. The figure of $US39 billion will top the $US21 billion loss back in 1992 (when the US currency was much stronger and the loss of that size was a real shock).
GM said the non-cash charge relates “to deferred tax assets in the U.S., Canada and Germany.”
GM is writing down the tax assets because it may not be able to generate enough earnings in future years before the benefits expire. US analysts say the decision is another sign of a worsening outlook for the US economy and car sales in North America and in Europe where it has big operations in Germany in particular.
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GM mentioned another problem, its involvement in the festering subprime mortgage crisis which its 49% associate, GMAC, has already lost over $US1 billion in write-downs and provisions. GMAC reported a $US1.6 billion third-quarter loss on 1 November. GM sold 51% of GMAC last year to a group led by Cerberus Capital Management LP.
GMAC had already reported losses on subprime business early in the year and the latest loss was overshadowed by the news of losses at Citigroup and Merrill Lynch. The company said the decision was taken after assessing “three-year historical cumulative loss” in the U.S., Canada and Germany but didn’t disclose any further details.
GM had decided earlier in the year that it didn’t need to make this charge because it was confident about the future of earnings from the US, Canada and Europe (which are its major business areas). It can reverse some or all of the charge if the profit outlook improves, but analysts say the news of the huge loss won’t help sentiment already battered by the subprime woes and rising losses.